By Kim Yon-se
Staff Reporter


LG Card, Korea’s No. 2 credit card company, is facing bankruptcy as LG Electronics and LG Chem on Wednesday rejected a demand from creditor banks to rescue the debt-strapped card issuer.

Amid growing speculation that other LG affiliates, such as LG Engineering & Construction and LG Petrochemical, will also refuse to accept the proposal, market observers say the creditors are not likely to take lenient steps to save the troubled card firm.

After an emergency executive meeting, the two chaebol-based LG affiliates announced that they had decided not to accept the creditors’ proposal for a debt-for-equity swap amounting to 875 billion won with LG Group affiliates.

Officials at LG Chem and LG Electronics said their companies’ executives believe accepting such a demand would undermine the credibility of LG Group and Korea and raise the possibility of lawsuits from shareholders of LG affiliates.

``Most of our foreign shareholders are skeptical of another bailout,’’ an LG Group official said. ``Other sister companies are sure to announce stances similar to that of LG Chem, which is considered the mother of LG Group.’’

He added that another debt-for-equity swap would be tantamount to breaking a promise made to shareholders at investor relations sessions over the past few months. But he didn’t rule out the possibility of a dramatic agreement between creditors and the group.

Of the 875 billion won, LG Electronics and LG Chem were pressed to shoulder 150 billion and 100 billion won, respectively.

The Korea Development Bank (KDB), the largest shareholder of LG Card with a 26 percent stake, and financial regulators were embarrassed by the group’s negative reaction.

Given that almost one in two Koreans possess plastic issued by LG Card, the financial market could experience some distress if LG Group continues to refuse to participate in the bailout plan.

The state-run KDB had planned to sell the card issuer to a healthy investor after achieving management normalization. ``We would have no choice but to liquidate LG Card in the worst scenario, although the group has still not given official notification of its final stance,’’ KDB executive director Na Jong-kyu said.

Last Monday, the state-run KDB and several commercial banks agreed to seek another bailout for LG Card through a debt-for-equity swap totaling 325 billion won, urging LG Group to play a major role in the rescue plan.

The creditors asked LG Group to swap 875 billion won of the 1.2 trillion won it holds in LG Card debts into equities.

A year ago LG Card faced bankruptcy with snowballing losses and overdue debts due to the reckless issuing of plastic over the past few years.

kys@koreatimes.co.kr